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The Digital Opportunity in Outbound and Reverse Logistics

 
December 26, 2017

The logistics industry stands at an inflection point today, confronted by both evolutionary as well as revolutionary changes brought upon by disruptive digital forces. Business expectations are changing rapidly, innovative business models are emerging, and customers are demanding a more transparent, and consistent logistics function.  Double-digit ecommerce growth is creating complex logistical scenarios that extend customer scenarios beyond ‘buy anywhere’ to include ‘return anywhere’ – and that too, at no extra cost. Not surprisingly, reverse logistics is fast emerging as an area of immense opportunity (and challenges) for organizations.  With the B2B ecommerce market set to hit USD 6 trillion by 2020, and retail ecommerce expected to touch USD 4 trillion by then, transforming logistics and reverse logistics operations into seamless, omni-channel supply networks is fundamental to staying relevant, competitive, and profitable.

Digital logistics is still a work in progress

According to MHI’s 2017 annual survey on next generation supply chains, only 16% of respondents say their organizations are working towards digital supply chains today, though 80% believe digital will be the predominant model within the next five years. Lack of expertise in digital technologies such as predictive analytics, robotic automation, advanced machine learning and Internet of Things (IoT) is the foremost adoption challenge for most players.

The situation is similar in reverse logistics as well. According to the Reverse Logistics Association, the volume of returns annually is estimated to cost between USD 150 and 200 billion. Up to 91% of returns are a direct result of retailers’ efforts to attract new customers through free returns on unwanted purchases, prompting customers to deliberately over-order.

Adding to the complexity, returns are often managed by third-party logistics providers (3PLs) such as FedEx and DHL. 3PLs help shippers accelerate the returns process without having to deploy manpower at every location. However, this often leads to bloated inventories at the 3PL fulfillment side, mandating digital logistics processes to minimize losses and channel inventory, where needed, in real time.

How digital is transforming outbound and reverse logistics

Here are four ways in which a mix of digital technologies such as IoT, robotic process automation (RPA), cloud computing, and analytics, can help develop a strong outbound and reverse logistics strategy:

  • Smart tagging for track-and-trace operations: Connecting products throughout their lifecycle in real-time is at the core of digitizing logistics operations. Integrating next-generation super-high-frequency RFID, sensing, data logging, and on-chip analytics with beacon sensor technology, enables retailers and manufacturers to connect products and track them across their journey. They can also classify items into categories such as damaged, used, replacement, or recycle, enabling a faster and more robust supply chain network. US based BJC Healthcare uses RFID inventory management techniques to avoid over or under-stocking scenarios. By doing so, the hospital has managed to cut stock-at-hand by 23%, freeing locked capital for other core operations.
  • Flexible returns for superior customer experience: Today’s customers demand greater control over every step of the logistics process. A well designed, flexible returns process should allow customers to drop off return packages at a convenient location, which can then be tracked using sensors and beacons, and processed appropriately. Recognized as an innovative supply chain leader, UPS pioneered this practice with UPS Returns Flexible Access. The program accelerates return of shipped goods back to the company’s warehouse, without the hassle of shipping labels for customers or the need for additional manpower required to do the job.
  • Autonomous vehicles and drones for faster shipping and returns: Drones are the future of logistics delivery as they address two major challenges – shortage of drivers and long-haul driver fatigue. Powered by robotics technology, drones not only enable delivery the same-day, within a few hours, or even minutes, but also handle returns at the same pace. Amazon’s Prime Air drone delivery system, complete with airborne fulfillment and docking stations, is the most anticipated project in this space.
  • IoT enabled warehouses for storage optimization, maintenance, and security: IoT enabled smart warehouses can be equipped with RFID tags, sensors, wearables, robots, and smart equipment, enabling better storage capacity utilization, as well as safer, cost-efficient, and faster operations. DHL recently launched three smart warehouses in Germany in an attempt to move towards agile supply chain management.

Closing the supply chain loop for competitive advantage

As the demand for ‘free shipping’ and  ‘free returns’ grows, an effective outbound and reverse logistics strategy is crucial to delight customers while absorbing the costs involved. In addition to the digital technologies discussed earlier, Big Data can play a crucial role by helping organizations identify trends and proactively predict customer behavior. What are the other use cases for digital technologies in automating and simplifying outbound and reverse logistics? Tell us in the comments section below!

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Avinash Pattabhiram is a Marketing Manager with the Business Operations unit at Tata Consultancy Services (TCS). He has seven years of experience in the areas of research, marketing, and consulting. Prior to the current role, Pattabhiram worked as an Energy Analyst, tracking energy trends and alternative energy markets. His research reports and articles have been published in many international journals and magazines. Pattabhiram holds a Masters degree in Thermal Engineering from the College of Engineering, Guindy, India, and a Management degree from the Indian Institute of Management, Ahmedabad, India.